The Fed's non-committal attitude towards easing monetary policy has trapped gold in a sideway pattern over the past couple of months, with investors moving to sidelines.

Besides the Fed meeting, the European Central Bank will hold its policy meeting on Thursday, under pressure from investor expectations of immediate action after its chief, Mario Draghi, vowed last week to do anything within the bank's mandate to preserve the single currency.

"Gold may come under some pressure in the run-up to this week's central bank meetings with the possibility of a dip below $1,610, but direction will depend almost entirely on policy decisions," said ANZ in a research note.

More quantitative easing, or cash-printing, by central banks will raise the inflation outlook and drive investors to buy gold, seen as a good hedge against rising prices.

Spot gold inched up 0.2 percent to $1,623.56 an ounce by 0322 GMT.

US gold futures contract for August delivery traded up 0.2 percent to $1,622.80.

Enthusiasm from gold investors has cooled off in recent months. By July 24, speculators had cut their net long positions in US gold futures and options to the lowest level since December 2008.

Holdings of exchange-traded funds also declined. SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, saw its holdings drop to the lowest level since last November, at 1,248.606 tonnes.

"The speculative interest and ETF flow are not being supportive of gold," said Dominic Schnider, an analyst at UBS Wealth Management in Singapore.

Schnider expected gold prices to fall to as low as $1,520 an ounce in the next three months, on the absence of more bond buying by the Fed. He was also sceptical that the ECB could do much to address the fundamental malaise lying beneath the ailing economy.

"They can't solve the structural problems such as rigid labour laws. The underlying problems are still there and you could only postpone the inevitable."

Economic sentiment in the euro zone fell to near a 3-year low in July as the bloc's economy deepened its slump and businesses became more pessimistic.

The correlation between the dollar and gold stood at -0.74, suggesting the strongest inverse correlation since beginning of the year.

More monetary stimulus in the euro zone may further weaken the euro and buoy the dollar, adding additional pressure on gold prices, said Schnider.

Spot silver rose to $28.28, its highest in nearly four weeks, before easing slightly to $28.24.

Spot palladium hit $590.25, also its highest since July 5.